Wind Subsidy Breezes Through Fiscal Cliff Compromise

In the last-hour bargaining to stop the nation from falling off the “fiscal cliff,” the White House and Congress chose not to spare taxpayers from a hike in the Social Security payroll tax despite finding room to include myriad tax breaks and provisions for railroads, racetrack owners, rum makers – and wind energy producers.

The wind industry received a one-year extension of the production tax credit (PTC) – set to expire at the end of 2012 – that was part of a “tax extenders” package included in the American Taxpayer Relief Act, signed into law by President Obama on Wednesday.

Under the former law that expired at the end of 2012, eligible wind energy companies received a 2.2-cent tax credit for each hour of electricity produced. Wind turbines that were connected to the grid and in commercial service before Jan. 1 were entitled to the subsidy in their first 10 years of operation. Producers could also request a lump sum equal to 30 percent of the construction cost. The extension, based on a measure passed by the Senate Finance Committee in August, makes an important change to the previous law – now any turbines that are under construction before Jan. 1, 2014, will be eligible for the subsidy.

Sen. Mark Udall (D-Colo.), who has led efforts to push PTC legislation and has made around 30 floor speeches on the matter, said in an online discussion last month that "quiet conversations" had been ongoing among senators about how to include the extension into the broader fiscal cliff deal.

The months leading up to the expiration of the law saw a rush of new projects as companies scrambled to meet the Dec. 31 deadline. As of the end of November, 6,000 watts of wind capacity had been installed, but the U.S. Energy Information Administration (EIA) expected 12,000 megawatts in total by the end of the year.

As the Wall Street Journalnoted, the wind subsidy began as a temporary credit from the very beginning. Since its inception as part of the Energy Policy Act of 1992, the program has been renewed several times through many different laws, including the American Recovery and Reinvestment Act of 2009.

Kansas Rep. Mike Pompeo, leader of a group of House Republicans opposing the wind subsidy, sent a letter to House Speaker John Boehner in September urging him to allow the PTC to expire by the end of the year.

“Every candidate in this election—Democrats and Republicans—ran on talking about closing tax loopholes. Extending this tax credit runs counter to all that,” said Pompeo.

Republicans from states such as Iowa and Colorado have fought to keep the tax credit in place. Many legislators, mainly from windy states, also supported a gradual phase-out of the tax credit.

Last year, Sen. Chuck Grassley (R-Iowa), author of the original amendment that established the tax credit in the early 1990s, said he would be in favor of a gradual phase-out of about 20 percent per year. A bipartisan group of governors joined Grassley in November to stress that a multi-year phase-out might serve the industry better than a one-year extension.

After persistently lobbying for an extension of the credit, the American Wind Energy Association (AWEA) sent a letter to Congress a few days before the law was set to expire, saying that it would be willing to accept a six-year phase-out of the PTC. The group warned Congress that without an extension more than 30,000 jobs would be lost by the end of the first quarter of 2013.

Wind power today provides 50,000 megawatts – roughly 3.5 percent – of U.S. electricity capacity, compared to eight megawatts in 1980. Since 2007, wind has amounted to nearly 40 percent of all the new electricity capacity built in this country. According to EIA, wind generators accounted for 45 percent of total additions to electric generating capacity in 2012 – more than any other fuel source, including natural gas, which was the leading fuel source for electric generating capacity additions in 2010 and 2011.

Around 30 states have mandates requiring that a percentage of electricity production come from renewable sources, guaranteeing the wind industry a market. In the states where mandates are in place, companies not only benefit from the market guarantee but also receive the federal subsidy.

The Joint Committee on Taxation estimated that modifying the expiration date would cost the federal government $116 million in 2013 alone. Through the 10-year span of the credit, the one-year extension will come at an estimated cost of $12.1 billion.

After news broke that both houses of Congress had passed the “fiscal cliff” bill, supporters of the wind subsidy swiftly voiced their enthusiasm over the extension.

"On behalf of all the people working in wind energy manufacturing facilities, their families, and all the communities that benefit, we thank President Obama and all the Members of the House and Senate who had the foresight to extend this successful policy, so wind projects can continue to be developed in 2013 and 2014," said Denise Bode, CEO of AWEA.

“Extending the wind Production Tax Credit is a long-overdue dose of certainty for manufacturers who employ more than 5,000 Coloradans and 60,000 workers across America," Sen. Udall said. "Although this deal is not perfect, I am glad my colleagues have acknowledged what I have spoken about regularly on the Senate floor: Wind energy creates jobs and benefits every American. I look forward to continuing to lead the fight for our wind industry and an all-of-the-above energy policy in 2013."

Meanwhile, Grassley and Sen. Tom Harkin (D-Iowa), who have both championed wind power, voted against the measure on Tuesday, saying they were more concerned about the fiscal impact of the law than the PTC.

Speaking to Iowa reporters during a conference call Wednesday, Grassley explained that he had voted against the bill because it did nothing to address federal spending. Nevertheless, Grassley said the extension “was an improvement over the previous tax credit” because it gives wind energy producers more time.